Interim Results
Burberry Group PLC
18 November 2003
Burberry Group plc
Interim Results
18 November 2003. Burberry Group plc reports interim results for its first half
ended 30 September 2003.
Financial highlights
• EBITA* increased 21%, to £66.9m from £55.1m
• EBITA margin expanded from 20.1% to 20.8%
• Diluted EPS before goodwill amortisation increased 25% to 9.0p
• Gross profit margin maintained at 55.6% (vs. 55.8%)
• Total revenues increased by 17% (16% underlying**) to £321.3m
- Retail sales up 25% (20% underlying) to £107.2m
- Wholesale sales increased 14% (13% underlying) to £183.4m
- Licensing revenue up 13% (15% underlying) to £30.7m
• Interim dividend of 1.5p per Ordinary Share declared (vs. 1.0p)
*EBITA represents operating profit before interest, taxation, IPO related items
and goodwill amortisation.
**Underlying figures are calculated at constant exchange rates and exclude the
impact of the July 2002 acquisition of the operations of Burberry's distributor
in Korea (the 'Korea acquisition').
Strategic highlights
• Launched iconic Brit fragrance to strong consumer response
• Opened three Burberry stores, including 8,000 square foot store in
Milan, the international fashion capital
• Progress in Spain repositioning demonstrated by return to revenue growth
• Brand priorities advanced in Japan
• Continued to extend reach in underdeveloped markets with planned opening
of Moscow store
Summary of results
Six months
ended 30
September 2003 Six months ended 30 September 2002
------------------------------------
Before IPO IPO
related related
As reported charges charges As reported
£m £m £m £m
Turnover 321.3 273.7 - 273.7
Operating
profit before
goodwill
amortisation
(EBITA) 66.9 55.1 (22.2) A 32.9
Profit before
interest and
taxation 63.4 52.2 (22.2) 30.0
Profit after
tax 41.9 33.4 (17.4) 16.0
Earnings per share
- basic 8.5p 6.7p (3.5p) 3.2p
- diluted 8.3p 6.6p (3.4p) 3.2p
Earnings per share before
goodwill
amortisation
- basic 9.1p 7.3p (3.5p) 3.8p
- diluted 9.0p 7.2p (3.5p) 3.7p
Note A: The charge of £22.2m for IPO related items consists of the exceptional
charge in connection with the grant of awards under the Restricted Share Plan
and associated national insurance liability, together with the cost of gift of
shares to employees under the All Employee Share Plan and other IPO costs.
John Peace, Chairman of Burberry, commenting on the interim results: 'This
strong first half performance in the context of a challenging trading
environment highlights the strength of the Burberry brand and the dedication and
talents of its management team.'
Rose Marie Bravo, Chief Executive, stated, 'Burberry's encouraging performance
in the first half was driven by the continued execution of our strategies. It
also reflects the diversity of our business across product categories, channels
and regions. With these results, Burberry is trading in line with the consensus
range of expectations for the financial year.'
Management will discuss these results during a presentation to analysts and
institutions at 2:00pm today at Merrill Lynch Financial Centre (telephone +44
(0) 20 7404 5959). The presentation will also be broadcast live on the Internet
at www.burberryplc.com and can be accessed by telephone at 0845 245 3421 (UK)
and +44 1452 542 300 (international). Replay: +44 1452 550 000.
Enquiries:
Burberry +44 (0) 20 7968 0411
Mike Metcalf COO and CFO
Matt McEvoy Strategy and IR
Brunswick +44 (0) 20 7404 5959
Susan Gilchrist
Sophie Fitton
Certain statements made in this announcement are forward looking statements.
Such statements are based on current expectations and are subject to a number of
risks and uncertainties that could cause actual results to differ materially
from any expected future results in forward looking statements.
This announcement does not constitute an invitation to underwrite, subscribe for
or otherwise acquire or dispose of any Burberry Group plc or GUS plc shares.
Past performance is not a guide to future performance and persons needing advice
should consult an independent financial adviser.
Chief Executive's Review
Burberry performed strongly over the first half, both in terms of financial
results and strategic progress. The half brought a challenging combination of
macroeconomic, political and health related factors. Over the period, the
management team successfully responded to the volatile climate while continuing
to invest in future growth. In the first half, Burberry increased profit after
tax by 25% on 17% revenue growth, and solidly advanced its strategic priorities.
Results also benefited from the diversity of the business across product
categories, channels and regions.
Strategic highlights
We continued to drive the business through implementing our key growth
strategies by product, region and channel.
Products. Burberry enjoyed progress in all major product categories. Menswear
achieved the fastest growth as our design and merchandising efforts continued to
demonstrate progress in this recovering market segment. Womenswear showed
continued strength across its product range. In accessories, we built on our
successful contemporary handbag offerings with the new Marrakesh line. With the
softness in travel and tourist related sales, which affected the luxury goods
industry generally, accessories share of the revenue mix was broadly unchanged,
in line with expectations. Burberry Brit, our new fragrance, launched in the US
and Europe during early autumn generating strong response from consumers. Its
iconic packaging and extensive media campaign brings important branding and
awareness benefits to these key markets.
Regions. We continued to increase Burberry's geographical market penetration,
extending our global reach. Throughout the first half, the US was consistently
the best performing market, driven by strong gains in directly operated stores
and among wholesale partners. Benefiting from the ongoing repositioning efforts,
Burberry's business in Spain achieved a strong first half result. The process of
refining distribution, upgrading the product offering and increasing the
marketing investment brought renewed revenue growth to this important market. In
Japan, Burberry achieved single digit volume gains on top of very strong growth
achieved in the comparable period. Effective September 2003, Burberry assumed
the direct role of managing and monitoring the non-apparel licensees in Japan,
enhancing our ongoing product and distribution initiatives in this market. These
efforts are complemented by our apparel licence partner's plan to open a store
in the fashionable Omotesando district of Tokyo in spring 2004. Other European
and Asian markets generally experienced varying degrees of recovery during the
first half.
In under developed markets, Burberry continued its expansion. Wholesale partners
in China opened six additional points of distribution, bringing the total to 26
in this vibrant economy. A local partner also opened a Burberry store in Kuwait,
giving a total of three stores in the Middle East. In addition, we announced the
first Burberry store in Russia. The Moscow store will be operated by a local
partner and is scheduled to open in early 2004.
Chief Executive's Review (continued)
Channels. Retail investment continued to lead our growth. Retail sales increased
25% in the first half, driven primarily by new stores. Our first store in Italy,
in Milan, was the most significant opening during the period. Located in the
centre of this fashion capital's prime shopping area, the 8,000 square foot
store presents the complete revitalised Burberry brand for local consumers and
the global fashion community. In addition, Burberry opened a store in Tyson's
Corner (Virginia) and a second store in Las Vegas. The Group continued its
refurbishment program, completing several significant investments designed to
expand and upgrade selling space. Wholesale revenues increased by 14% during the
half, fuelled by the success of our autumn/winter 2003 collections. This growth
was achieved across all major geographic regions.
Financial highlights and outlook
Burberry achieved strong financial performance during the first half. Turnover
increased by 17% to £321.3m. The EBITA* margin expanded from 20.1% to 20.8%,
driven by a stable gross margin coupled with expense ratio gains resulting from
focussed cost control and expense leverage. As a result, EBITA* increased by 21%
to £66.9m and diluted EPS before goodwill amortisation grew 25% to 9.0p. This
financial performance is notable in light of the volatile external environment
in the half.
Looking forward, Burberry is trading in line with the consensus range of
expectations for the full financial year. In retail, Burberry remains on
schedule to open six stores during the period, resulting in total average
selling space expansion of approximately 12% year over year in the second half.
Management anticipates that space expansion will be the dominant driver of
retail revenue growth during the second half. With respect to the wholesale
business, on the basis of the orders received to date, the Group anticipates mid
to high single digit sales growth for the spring/summer 2004 season. In
licensing activities, Burberry anticipates a lower rate of revenue growth over
the balance of the year. In Japan, management expects the benefit of increases
in certain royalty rates and revised management arrangements to be partially
offset by broadly static volume growth and Yen depreciation. The Group also
anticipates continued strong performance from global product licensees.
*EBITA represents operating profit before interest, taxation, IPO related items
and goodwill amortisation.
Financial Review
Group results
Six months to 30 September 2002
-------------------------------
Six months to Results before IPO
30 September Percentage of IPO related Percentage of related
2003 turnover items turnover items Total
£m % £m % £m £m
------------------------------------------------------------------------------------------------------
Turnover
Wholesale 183.4 57.1% 160.9 58.8% - 160.9
Retail 107.2 33.4% 85.6 31.3% - 85.6
Licence 30.7 9.6% 27.2 9.9% - 27.2
------------------------------------------------------------------------------------------------------
Total turnover 321.3 100.0% 273.7 100.0% - 273.7
Cost of sales (142.8) (44.4%) (121.1) (44.2%) - (121.1)
------------------------------------------------------------------------------------------------------
Gross profit 178.5 55.6% 152.6 55.8% - 152.6
Net operating
expenses (111.6) (34.7%) (97.5) (35.6%) - (97.5)
------------------------------------------------------------------------------------------------------
EBITA 66.9 20.8% 55.1 20.1% - 55.1
Goodwill
amortisation (3.5) (1.1%) (2.9) (1.1%) - (2.9)
Employee share
ownership
plans at IPO - - - - (22.2) (22.2)
------------------------------------------------------------------------------------------------------
Profit before
interest and
tax 63.4 19.7% 52.2 19.1% (22.2) 30.0
Net interest
income/(expense) 0.7 0.2% (1.0) (0.4%) - (1.0)
Currency loss
on GUS loans
(pre-flotation) - - - - (2.3) (2.3)
------------------------------------------------------------------------------------------------------
Profit on
ordinary
activities
before
taxation 64.1 20.0% 51.2 18.7% (24.5) 26.7
Tax on profit
on ordinary
activities (22.2) (6.9%) (17.8) (6.5%) 7.1 (10.7)
------------------------------------------------------------------------------------------------------
Profit on
ordinary
activities
after taxation 41.9 13.0% 33.4 12.2% (17.4) 16.0
------------------------------------------------------------------------------------------------------
Diluted EPS
before
goodwill
amortisation 9.0p - 7.2p - (3.5p) 3.7p
Diluted EPS 8.3p - 6.6p - (3.4p) 3.2p
------------------------------------------------------------------------------------------------------
Diluted
weighted
average number
of Ordinary
Shares
(millions) 505.3m - 506.3m - 506.3m 506.3m
------------------------------------------------------------------------------------------------------
Burberry Group turnover is composed of revenue from three channels of
distribution: wholesale, retail and licensing operations. Wholesale revenue
arises from the sale of men's and women's apparel and accessories to wholesale
customers worldwide, principally leading and prestige department stores and
speciality retailers. Retail revenue is derived from sales through the Group's
directly operated store network. At 30 September 2003, the Group operated 136
retail locations (2002: 124) consisting of 49 Burberry stores (2002: 45), 64
concessions (2002: 59) and 23 outlet stores (2002: 20). Licence revenue consists
of royalties receivable from Japanese and product licensing partners.
Comparison of the six months ended 30 September 2003 to the six months ended 30
September 2002
Burberry Group has completed two transactions that affect the comparability of
results for the six months ended 30 September 2003 relative to the six months
ended 30 September 2002. On 1 July 2002, the Group purchased the operations and
certain assets of its distributor in Korea, which largely operated as a retail
business consisting of 46 concessions and an outlet store at acquisition date
(the 'Korea acquisition'). In determining 'underlying' performance, financial
results are adjusted to exclude the impact of the Korea acquisition, and to
reflect prior financial year exchange rates. On 17 July 2002, Burberry Group
completed a reorganisation in connection with its initial public offering and
admission to the London Stock Exchange (the 'IPO').
Financial Review (continued)
Turnover
Total turnover in the first half advanced to £321.3m from £273.7m in the prior
period, representing an increase of 17% (17% at constant exchange rates), or 16%
on an underlying basis.
Retail sales increased by 25% to £107.2m, boosted by the Korea acquisition. On
an underlying basis, retail sales increased by 20%. This growth was driven by
new stores with a marginal contribution from existing stores. Throughout the
period, the US was consistently the best performing market while Burberry's
other geographic markets generally experienced varying degrees of recovery
during the half. The Group opened three Burberry stores in the period: Milan,
Tyson's Corner (Virginia) and a second store in Las Vegas.
Wholesale sales increased by 14% to £183.4m during the half, driven by double
digit gains for the autumn/winter 2003 season. This increase resulted from solid
growth across all regions. Notably, sales growth resumed in Spain, reflecting
repositioning efforts in that market. On an underlying basis, wholesale sales
increased by 13%.
Licensing revenues in the half increased by 13%, 15% underlying, to £30.7m.
Licensing revenues from the Japanese market reflected increases in certain
royalty rates and single digit volume gains. Licensing revenue also benefited
from strong sales gains by global product licensees, including fragrances,
eyewear and children's apparel.
Operating profit
Gross profit as a percentage of turnover was maintained at 55.6% in the first
half of 2003/04 relative to 55.8% in the prior period. Gains from pricing,
sourcing and channel mix were offset by costs associated with greater seasonal
clearance activity in the half.
Operating expenses as a percentage of turnover were reduced to 34.7% from 35.6%
in the previous period. The expense ratio reduction is primarily a function of
focussed cost control as well as the leveraging of fixed expenses, while the
absolute increase in the Group's expenses reflects growth of the business,
particularly the retail expansion and infrastructure investment.
Goodwill amortisation increased to £3.5m from £2.9m as the result of a full six
months of amortisation expense associated with the Korea acquisition relative to
a partial period in the previous year and exchange rate movements.
As a result of these factors, EBITA increased by 21% to £66.9m, or 20.8% of
turnover from 20.1% in the comparative period. Profit before interest and tax
increased 21% to £63.4m, or 19.7% of turnover.
Financial Review (continued)
Net interest expense
Net interest income was £0.7m in the six months to September 2003 compared to
net expense of £1.0m in the prior period. The improvement reflects larger cash
balances in the current period and the elimination of borrowings during the
second half of the 2002/03 financial year.
IPO related charges
In connection with the initial public offering, the Group incurred a £22.2m
exceptional charge in the six months to September 2002 largely relating to its
employee share ownership plans. As no further awards will be made under these
plans, the consolidated profit and loss account will not be affected in future
periods.
During the six months to 30 September 2002, the Group also incurred a £2.3m
foreign exchange loss on borrowings held on behalf of the GUS group; these
borrowings were eliminated as part of the reorganisation prior to the flotation.
Profit before taxation
As a result of the above factors, Burberry reported profit before taxation of
£64.1m in the six months to 30 September 2003 compared to £51.2m (excluding IPO
related charges) in the prior period.
Profit after taxation
Burberry anticipates a 33% tax rate on profit before goodwill amortisation for
the full 2003/04 financial year. On this basis, the Group recorded a £22.2m tax
charge for the first half and reported profit after tax of £41.9m for the six
months ended 30 September 2003, a 25% increase over the £33.4m (excluding IPO
related charges) reported in the prior period.
Diluted earnings per share before goodwill amortisation increased 25% to 9.0p in
the half compared to 7.2p (excluding IPO related charges) in the prior period.
In the six months to September 2003, the Group had 495.8m (2002: 498.2m) and
505.3m (2002: 506.3m) Ordinary Shares in issue on average for the purposes of
calculating basic and diluted earnings per share, respectively. An average of
4.2m Ordinary Shares held by the Group's Employee Share Ownership Trusts are
excluded for the purposes of the basic and diluted earnings per share
calculations.
Liquidity and Capital Resources
Historically, Burberry's principal uses of funds have been to support
acquisitions, capital expenditures and working capital growth in connection with
the expansion of its business. Principal sources of funds have been cash flow
from operations and financing from the GUS group. Following its IPO in July
2002, the Group expects to finance operations and capital expenditures with cash
generated from operating activities and, if necessary, the use of its £75m
credit facility.
The table below sets out the principal components of cash flow for the six month
periods ended 30 September 2003 and 30 September 2002 and net funds at the
period end:
Six months to Six months to
30 September 30 September
2003 2002
£m £m
------------------------------------------------------------------------------
Operating profit before interest, taxation,
goodwill amortisation and IPO related items 66.9 55.1
Depreciation and related charges 10.4 6.9
Increase in stocks (9.0) (2.0)
Increase in debtors (30.1) (25.3)
Increase in creditors 4.8 5.5
------------------------------------------------------------------------------
Net cash inflow from operating activities 43.0 40.2
Returns on investments and servicing of finance 0.7 (0.6)
Taxation paid (18.3) (10.7)
Net purchases of fixed assets (14.6) (30.6)
Purchase of own shares (7.0) (3.1)
Acquisition of Korean business - (20.5)
------------------------------------------------------------------------------
Net cash inflow/(outflow) before IPO related and
financing activities 3.8 (25.3)
------------------------------------------------------------------------------
Net funds at end of period 73.5 12.3
------------------------------------------------------------------------------
Net cash flow from operating activities increased to £43.0m in the half year
ended 30 September 2003 from £40.2m in the comparative period. Stocks grew by
£9.0m; the moderate increase relative to sales is primarily a result of timely
shipping performance to wholesale customers and improved stock management. The
£30.1m increase in debtors reflects seasonal growth of trade receivables.
Net cash outflow from purchases of fixed assets of £14.6m largely reflects
investment in Burberry Group's retail operations.
During the six months ended 30 September 2003 Burberry invested £7.0m in its own
shares as an economic hedge against obligations under the Group's employee share
ownership plans.
Net funds of £73.5m at 30 September 2003 comprise £65.5m cash and short term
deposits and £8.0m of cash deposited with a GUS plc subsidiary, which was
deposited on standard commercial terms.
An interim dividend of 1.5p per share (2002: 1.0p), £7.4m in total, will be
payable on 4 February 2004.
Group profit and loss accounts
Six months to Six months to Year to
30 September 30 September 31 March
2003 2002 2003
Note £m £m £m
----------------------------------------------------------------------------------------
Turnover 2 321.3 273.7 593.6
Cost of sales (142.8) (121.1) (261.3)
----------------------------------------------------------------------------------------
Gross profit 178.5 152.6 332.3
Net operating
expenses (115.1) (122.6) (244.0)
----------------------------------------------------------------------------------------
Operating
profit 63.4 30.0 88.3
Operating
profit before
goodwill
amortisation
and
exceptional
items: 66.9 55.1 116.7
- goodwill
amortisation (3.5) (2.9) (6.4)
- exceptional
charges
relating to
IPO employee
share plans 3 - (22.2) (22.0)
Interest and
similar income 0.8 1.1 1.8
Interest
expense (0.1) (2.1) (2.7)
Foreign
currency loss
on loans with
GUS group
(pre-flotation) - (2.3) (2.3)
Interest
expense and
similar
charges (0.1) (4.4) (5.0)
----------------------------------------------------------------------------------------
Profit on
ordinary
activities
before
taxation 2 64.1 26.7 85.1
Tax on profit
on ordinary
activities* 4 (22.2) (10.7) (32.9)
----------------------------------------------------------------------------------------
Profit on
ordinary
activities
after taxation 41.9 16.0 52.2
Dividend -
interim 6 (7.4) (5.0) (5.0)
Dividend -
final 6 - - (10.0)
Dividend - to
GUS group
(pre-flotation) 6 - (219.0) (219.0)
----------------------------------------------------------------------------------------
Retained
profit/(loss)
for the period 34.5 (208.0) (181.8)
========================================================================================
Pence per share
-----------------
Earnings (note 5)
- basic 8.5p 3.2p 10.5p
- diluted 8.3p 3.2p 10.3p
Earnings before goodwill
amortisation and exceptional
items
- basic 9.1p 7.0p 14.9p
- diluted 9.0p 6.9p 14.6p
Dividends (note 6)
Dividend per
share -
interim 1.5p 1.0p 1.0p
Dividend per
share - final - - 2.0p
*Tax on profit on ordinary activities includes tax credits on goodwill
amortisation and exceptional items of £0.1m in the six months ended 30 September
2003 (30 September 2002: £6.4m; 31 March 2003: £6.5m): see note 3.
Statement of total recognised gains and losses
Six months to Six months to Year to
30 September 30 September 31 March
2003 2002 2003
£m £m £m
--------------------------------------------------------------------------------
Retained profit/(loss) for the 34.5 (208.0) (181.8)
period
Currency translation differences (1.5) (14.5) 1.1
Tax impact of currency translation
differences (0.1) - (0.4)
Impact of currency translation
differences (1.6) (14.5) 0.7
--------------------------------------------------------------------------------
Total recognised gains and losses
for 32.9 (222.5) (181.1)
the period
--------------------------------------------------------------------------------
Reconciliation of movement in Shareholders' Funds
Six months to Six months to Year to
30 September 30 September 31 March
2003 2002 2003
£m £m £m
--------------------------------------------------------------------------------
Profit on ordinary activities
after taxation 41.9 16.0 52.2
Dividend - interim (7.4) (5.0) (5.0)
Dividend - final - - (10.0)
Dividend - to GUS group
(pre-flotation) - (219.0) (219.0)
--------------------------------------------------------------------------------
Retained profit/(loss) for the
period 34.5 (208.0) (181.8)
Currency translation differences (1.6) (14.5) 0.7
Pre-flotation
Issue of preference share
capital - 0.8 0.8
Issue of Ordinary Share capital - 486.7 486.7
Deemed distribution arising on
reorganisation - (704.1) (704.1)
Capital reserve arising on
reorganisation - 6.6 6.6
On and post-flotation
Issue of Ordinary Share capital 0.3 250.5 250.5
Waiver of GUS group balances - 37.6 37.6
Capital reserve arising on
Restricted Share Plan ('RSP') at
IPO - 18.6 18.5
--------------------------------------------------------------------------------
Net addition to Shareholders'
Funds 33.2 (125.8) (84.5)
Opening Shareholders' Funds
(2002: GUS investment in
Burberry Group) 390.0 474.5 474.5
--------------------------------------------------------------------------------
Closing Shareholders' Funds 423.2 348.7 390.0
--------------------------------------------------------------------------------
Group balance sheets
As at As at As at
30 September 30 September 31 March
2003 2002 2003
Note £m £m £m
--------------------------------------------------------------------------------
Fixed assets
Intangible assets 121.6 121.1 123.7
Tangible fixed assets 163.7 144.4 161.4
Investments 10.4 3.2 3.4
--------------------------------------------------------------------------------
295.7 268.7 288.5
Current assets
Stock 91.9 86.1 83.8
Debtors 8 150.2 131.0 122.0
Cash and short term
deposits* 73.6 40.6 86.6
--------------------------------------------------------------------------------
315.7 257.7 292.4
Creditors - amounts
falling due within one
year 9 (149.6) (123.5) (151.1)
--------------------------------------------------------------------------------
Net current assets 166.1 134.2 141.3
--------------------------------------------------------------------------------
Total assets less
current liabilities 461.8 402.9 429.8
Creditors - amounts
falling due after more
than one year 10 (34.0) (53.4) (35.2)
Provisions for
liabilities and charges (4.6) (0.8) (4.6)
--------------------------------------------------------------------------------
Net assets 423.2 348.7 390.0
--------------------------------------------------------------------------------
Called up share capital 1.1 1.1 1.1
Share premium account 122.5 122.2 122.2
Revaluation reserve 24.8 24.7 25.2
Capital reserve 46.0 46.9 47.1
Other reserve 11 704.1 704.1 704.1
Profit and loss account 11 (475.3) (550.3) (509.7)
--------------------------------------------------------------------------------
Equity Shareholders'
Funds 422.4 347.9 389.2
Non-equity Shareholders'
Funds 0.8 0.8 0.8
--------------------------------------------------------------------------------
Total Shareholders'
Funds 423.2 348.7 390.0
--------------------------------------------------------------------------------
* Cash and short term deposits includes £8.0m as at 30 September 2003 (2002:
£nil) deposited with GUS group on standard commercial terms. These deposits were
repaid in cash by 10 October 2003.
Group cash flow statements
Six months to Six months to Year to
30 September 30 September 31 March 2003
2003 2002
£m £m £m
--------------------------------------------------------------------------------
Net cash inflow from
operating activities 43.0 40.2 165.0
Returns on investments and
servicing of finance
Interest received 0.8 0.2 0.8
Interest paid (0.1) (0.8) (1.4)
Dividends received from
investment - - 0.1
--------------------------------------------------------------------------------
Net cash inflow/(outflow)
from returns on investments
and servicing of finance 0.7 (0.6) (0.5)
--------------------------------------------------------------------------------
Taxation paid (18.3) (10.7) (30.6)
--------------------------------------------------------------------------------
Capital expenditure and
financial investment
Purchase of tangible and
intangible fixed assets (14.6) (30.7) (55.7)
Sale of tangible fixed
assets - 0.1 0.2
Purchase of own shares (7.0) (3.1) (4.5)
--------------------------------------------------------------------------------
Net cash outflow from
capital expenditure and
financial investment (21.6) (33.7) (60.0)
--------------------------------------------------------------------------------
Acquisitions
Deferred consideration for
purchase of businesses - - (2.5)
Purchase of businesses - (20.5) (24.3)
--------------------------------------------------------------------------------
Net cash outflow from
acquisitions - (20.5) (26.8)
--------------------------------------------------------------------------------
Net cash inflow/(outflow)
before dividends, IPO
related and financing
activities 3.8 (25.3) 47.1
Dividends
Equity dividends paid
(including for period to 30
September 2002 £219m to GUS
group pre-flotation) (9.9) (219.0) (224.0)
Deemed distribution arising
on reorganisation (net of
capital reserve) - (697.5) (697.5)
Net cash outflow before
management of liquid
resources and financing (6.1) (941.8) (874.4)
Management of liquid resources
Increase in short term
deposits (1.4) (6.1) (47.3)
--------------------------------------------------------------------------------
Financing
Issue of Ordinary Share
capital 0.3 249.5 249.5
Issue of Ordinary Shares to
GUS group (pre-flotation) - 486.7 486.7
Issue of preference shares
to GUS group
(pre-flotation) - 0.8 0.8
Increase/(decrease) in
external borrowings - 21.2 (7.9)
Funds received on GUS group
balances (pre-flotation) - 446.1 446.1
Settlement of GUS group
balances (on flotation) - (250.5) (250.5)
Decrease in net balances
due from GUS group - 195.6 195.6
--------------------------------------------------------------------------------
Net cash inflow from
financing 0.3 953.8 924.7
--------------------------------------------------------------------------------
(Decrease)/increase in cash
during the period (7.2) 5.9 3.0
--------------------------------------------------------------------------------
Six months to Six months to Year to
Reconciliation of operating profit 30 September 30 September 31 March
to net cash inflow from operating 2003 2002 2003
activities £m £m £m
--------------------------------------------------------------------------------
Operating activities
Operating profit after goodwill
amortisation and exceptional items 63.4 30.0 88.3
Exceptional items - 22.2 22.0
Goodwill amortisation 3.5 2.9 6.4
--------------------------------------------------------------------------------
Operating profit before goodwill
amortisation and exceptional items 66.9 55.1 116.7
Depreciation, impairment and
trademark amortisation charges 10.4 6.9 19.0
Loss on disposal of fixed assets
and - - 1.5
similar non-cash charges
(Increase)/decrease in stocks (9.0) (2.0) 5.2
Increase in debtors (30.1) (25.3) (2.4)
Increase in creditors 4.8 5.5 25.0
--------------------------------------------------------------------------------
Net cash inflow from operating
activities 43.0 40.2 165.0
--------------------------------------------------------------------------------
Reconciliation of net cash flow to Six months to Six months to Year to
movement in net funds 30 September 30 September 31 March
2003 2002 2003
£m £m £m
--------------------------------------------------------------------------------
(Decrease)/increase in cash (7.2) 5.9 3.0
Cash (inflow)/outflow from movement
in external borrowings - (21.2) 7.9
Cash outflow from movement in liquid
resources 1.4 6.1 47.3
Cash inflow arising from GUS group
balances prior to flotation - (195.6) (195.6)
--------------------------------------------------------------------------------
Movement in net funds resulting from
cash flows (5.8) (204.8) (137.4)
Non-cash movements on GUS group
balances prior to flotation - (24.8) (24.8)
- tax and interest
- waiver of balances by GUS group - 37.6 37.6
Exchange movements (0.3) (9.3) (9.4)
--------------------------------------------------------------------------------
Movement in net funds (6.1) (201.3) (134.0)
Net funds at beginning of period 79.6 213.6 213.6
--------------------------------------------------------------------------------
Net funds at end of period 73.5 12.3 79.6
--------------------------------------------------------------------------------
As at As at As at
30 September 30 September 31 March
2003 2002 2003
Analysis of net funds £m £m £m
--------------------------------------------------------------------------------
Cash and short term deposits* 73.6 40.6 86.6
Unsecured bank loans and
overdrafts (0.1) (0.3) (7.0)
Secured bank loans due within one
year - (9.8) -
Debt due after more than one year - (18.2) -
--------------------------------------------------------------------------------
Net funds at end of period 73.5 12.3 79.6
--------------------------------------------------------------------------------
* Cash and short term deposits includes £8.0m as at 30 September 2003 (2002:
£nil) deposited with GUS group on standard commercial terms. These deposits were
repaid in cash by 10 October 2003.
Notes to the interim financial statements
1. Basis of preparation
The interim report comprises the unaudited results for the six months ended 30
September 2003 and 30 September 2002 and the audited results for the year ended
31 March 2003. The interim financial statements are not audited and do not
constitute statutory accounts. These financial statements have been formally
reviewed by the Group's auditors, PricewaterhouseCoopers LLP, and their report
is set out on page 22.
The financial information contained in this interim report does not constitute
statutory accounts within the meaning of section 240 of the Companies Act 1985.
The information at 31 March 2003 has been extracted from the statutory accounts
for the year ended 31 March 2003, which were reported on by the auditors without
qualification or statement under section 237(2) or (3) of the Companies Act 1985
and have been delivered to the Registrar of Companies.
Prior to flotation, on 17 July 2002, the net assets of Burberry Group were
represented by the cumulative investment of GUS group in Burberry Group (shown
as 'GUS investment in Burberry Group'). All non-trading transactions between
Burberry Group and GUS group were reflected as movements in 'GUS investment in
Burberry Group', which was comprised of:
a) Assets and liabilities not forming part of Burberry Group after
flotation. These assets and liabilities were transferred on or before
flotation to GUS group companies in part settlement of the loans
outstanding between GUS group and Burberry Group;
b) Loans due to and from GUS group companies. These amounts were settled
fully either as part of the Burberry Group reorganisation with shares
issued to GUS group and loan repayments, or by the waiver of such
loans by GUS group; and
c) Share capital and reserves of Burberry Group companies.
The balances in (a) and (b) above are referred to as 'GUS group balances' in the
'Reconciliation of movement in Shareholders' Funds', the 'Group cash flow
statements' and the 'Reconciliation of net cash flow to movement in net funds'.
Notes to the interim financial statements (continued)
2. Segmental analysis
(i) Geographical analysis - turnover by destination
Six months to Six months to Year to
30 September 30 September 31 March
2003 2002 2003
£m £m £m
--------------------------------------------------------------------------------
Europe 172.6 148.5 302.7
North America 71.7 58.4 140.5
Asia Pacific 75.1 64.4 147.0
Other 1.9 2.4 3.4
--------------------------------------------------------------------------------
Total 321.3 273.7 593.6
--------------------------------------------------------------------------------
(ii) Analysis by class of business
(a) Turnover - analysis by class of business
Six months to Six months to Year to
30 September 30 September 31 March
2003 2002 2003
£m £m £m
--------------------------------------------------------------------------------
Wholesale 183.4 160.9 306.9
Retail 107.2 85.6 228.4
--------------------------------------------------------------------------------
Wholesale and Retail 290.6 246.5 535.3
Licence 30.7 27.2 58.3
--------------------------------------------------------------------------------
Total 321.3 273.7 593.6
--------------------------------------------------------------------------------
An analysis of turnover by product category is shown below:
Six months to Six months to Year to
30 September 30 September 31 March
2003 2002 2003
£m £m £m
--------------------------------------------------------------------------------
Womenswear 107.0 91.5 197.9
Menswear 94.3 77.2 162.8
Accessories 87.3 75.5 169.5
Other 2.0 2.3 5.1
--------------------------------------------------------------------------------
Wholesale and Retail 290.6 246.5 535.3
Licence 30.7 27.2 58.3
--------------------------------------------------------------------------------
Total 321.3 273.7 593.6
--------------------------------------------------------------------------------
Number of directly operated stores,
concessions and outlets open at
period end 136 124 132
--------------------------------------------------------------------------------
Notes to the interim financial statements (continued)
2. Segmental analysis (continued)
(b) Profit before taxation - analysis by class of business
Six months to Six months to Year to
30 September 30 September 31 March
2003 2002 2003
£m £m £m
--------------------------------------------------------------------------------
Wholesale and Retail 40.2 31.4 64.3
Licence 26.7 23.7 52.4
--------------------------------------------------------------------------------
66.9 55.1 116.7
Net interest income/(expense) 0.7 (1.0) (0.9)
Foreign currency loss on loans with
GUS group (pre-flotation) - (2.3) (2.3)
--------------------------------------------------------------------------------
Profit before goodwill amortisation,
exceptional items and taxation 67.6 51.8 113.5
Goodwill amortisation - Wholesale
and
Retail (3.5) (2.9) (6.4)
Exceptional items - Wholesale and
Retail - (17.3) (18.3)
Exceptional items - Licence - (4.9) (3.7)
--------------------------------------------------------------------------------
Profit before taxation 64.1 26.7 85.1
--------------------------------------------------------------------------------
The results above are stated after the allocation of costs of a group wide
nature.
3. Exceptional items
Six months to Six months to Year to
30 September 30 September 31 March
2003 2002 2003
£m £m £m
--------------------------------------------------------------------------------
Granting of awards under the Senior
Executive Restricted Share Plan
('the RSP') - 18.6 18.5
Employers' national insurance
liability arising on the RSP awards - 2.2 2.1
Shares gifted to employees under the
All Employee Share Plan - 1.0 1.0
Other costs relating to the IPO - 0.4 0.4
--------------------------------------------------------------------------------
Total - 22.2 22.0
--------------------------------------------------------------------------------
The associated tax credit relating to these exceptional items was £6.4m in the
six months to 30 September 2002 and £6.3m in the year to 31 March 2003.
Awards were made under the RSP to the executive directors and other senior
management of Burberry Group in respect of services prior to flotation. No
previous awards had been made, and no further awards will be made, under the
RSP.
Notes to the interim financial statements (continued)
4. Taxation
The effective rate of tax, before goodwill amortisation and exceptional items,
is based on the estimated tax charge for the full year at a rate of 33.0% (2002:
33.0%). The actual effective rate of tax for the year ended 31 March 2003 on
this basis was 34.7%.
The tax charge in the six months to 30 September 2003 is treated as being wholly
current, with no deferred element.
Burberry Group has commenced a review with the Competent Authorities with
regards to resolving transfer pricing of internal sales between the UK and USA.
As part of the agreements with GUS, certain tax liabilities which arise and
relate to matters prior to 31 March 2002 will be met by GUS. From 1 April 2002
any liability will be due by Burberry Group. No provision has been made for
additional taxation arising from these proceedings as none is anticipated
overall.
5. Earnings per share
The calculation of basic earnings per share is based on profit after taxation
divided by the weighted average number of Ordinary Shares in issue during the
period.
Basic earnings per share before goodwill amortisation and exceptional items is
disclosed to indicate the underlying profitability of the Group. The calculation
of diluted earnings per share reflects the prospective dilutive effect of the
Restricted Share Plan ('RSP') and Share Option Schemes.
Six months to Six months to Year to
30 September 30 September 31 March
2003 2002 2003
£m £m £m
--------------------------------------------------------------------------------
Profit on ordinary activities after
taxation, but before goodwill
amortisation and exceptional items 45.3 34.7 74.1
Effect of goodwill amortisation (net
of attributable taxation) (3.4) (2.9) (6.2)
Effect of exceptional items (net of
attributable taxation) - (15.8) (15.7)
--------------------------------------------------------------------------------
Profit on ordinary activities after
taxation 41.9 16.0 52.2
================================================================================
The weighted average number of Ordinary Shares at 30 September 2003 represents
the weighted average number of Burberry Group plc Ordinary Shares throughout the
period, excluding Ordinary Shares held in Burberry Group's Employee Share
Ownership Trusts ('ESOTs').
The weighted average number of Ordinary Shares for the periods ending 30
September 2002 and 31 March 2003 represent the number of Burberry Group plc
Ordinary Shares in issue at flotation excluding Ordinary Shares held in Burberry
Group's ESOTs.
Diluted earnings per share for the relevant financial period is based on the
weighted average number of Ordinary Shares in issue at the beginning of the
period (or, for the periods ended 31 March 2003 and 30 September 2002, at
flotation) through to period end (excluding any Ordinary Shares held in Burberry
Group's ESOTs). In addition, account is taken of any awards made under the RSP
and Share Option Schemes, which will have a dilutive effect when exercised (full
vesting of all outstanding awards is assumed).
Notes to the interim financial statements (continued)
5. Earnings per share (continued)
Six months to Six months to Year to
30 September 30 September 31 March
2003 2002 2003
Millions Millions Millions
--------------------------------------------------------------------------------
Weighted average number of Ordinary
Shares in issue during the period 495.8 498.2 498.1
Dilutive effect of the RSP and Share
Option Schemes 9.5 8.1 8.1
--------------------------------------------------------------------------------
Diluted weighted average number of
Ordinary Shares in issue during the
period 505.3 506.3 506.2
================================================================================
Six months to Six months to Year to
30 September 30 September 31 March
2003 2002 2003
Basic earnings per share Pence Pence Pence
--------------------------------------------------------------------------------
Basic earnings per share before
goodwill amortisation and exceptional
items 9.1 7.0 14.9
Effect of goodwill amortisation (0.6) (0.6) (1.2)
Effect of exceptional items - (3.2) (3.2)
--------------------------------------------------------------------------------
Basic earnings per share 8.5 3.2 10.5
================================================================================
Six months to Six months to Year to
30 September 30 September 31 March
2003 2002 2003
Diluted earnings per share Pence Pence Pence
--------------------------------------------------------------------------------
Diluted earnings per share before
goodwill amortisation and exceptional
items 9.0 6.9 14.6
Effect of goodwill amortisation (0.7) (0.6) (1.2)
Effect of exceptional items - (3.1) (3.1)
--------------------------------------------------------------------------------
Diluted earnings per share 8.3 3.2 10.3
================================================================================
6. Dividend
The interim dividend of 1.5p (2002: 1.0p) per share will be paid on 4 February
2004 to Shareholders on the Register at the close of business on 23 January
2004.
Notes to the interim financial statements (continued)
7. Foreign currency
Assets and liabilities of overseas undertakings are translated into Sterling at
the rates of exchange ruling at the balance sheet date and the profit and loss
account is translated into Sterling at average rates of exchange. The principal
exchange rates used were as follows:
Average Closing
------------------------------------------- ------------------------------------
Six months to Six months to Year to As at As at As at
30 September 30 September 31 March 30 September 30 September 31 March
2003 2002 2003 2003 2002
2003
-----------------------------------------------------------------------------------
Euro 1.43 1.59 1.55 1.43 1.59 1.45
US 1.62 1.51 1.55 1.66 1.57 1.58
dollar
Hong
Kong 12.61 11.77 12.05 12.89 12.23 12.33
dollar
Korean 1,935 1,855 1,880 1,913 1,919 1,981
won -----------------------------------------------------------------------------------
The average exchange rate achieved by Burberry Group on its Yen royalty income,
taking into account its use of Yen forward sale contracts on a monthly basis
approximately 12 months in advance of royalty receipts, was Yen 179.88: £1 in
the six months to 30 September 2003 (2002: Yen 172.48: £1); year to 31 March
2003 Yen 174.20: £1.
8. Debtors
As at As at As at
30 September 30 September 31 March
2003 2002 2003
£m £m £m
--------------------------------------------------------------------------------
Amounts falling due within one year
Trade debtors 112.2 99.5 86.1
Other debtors* 3.0 4.2 1.1
Prepayments and accrued income 14.5 14.6 11.3
Corporation tax 0.2 - 3.4
Trading balances owed by GUS group 0.1 2.3 0.2
--------------------------------------------------------------------------------
130.0 120.6 102.1
Amounts falling due after more than one
year
Deferred tax assets 18.3 10.4 18.3
Corporation tax 0.8 - 0.8
Other debtors 1.1 - 0.8
--------------------------------------------------------------------------------
Total 150.2 131.0 122.0
--------------------------------------------------------------------------------
*Other debtors as at 30 September 2002 previously reported as £7.3m have been
adjusted to exclude £3.1m of investment in own shares; this amount is reported
as part of fixed asset investments.
The deferred tax assets at 30 September 2003 and 2002 reflect the asset recorded
at the immediately preceding 31 March, adjusted for any deferred tax arising on
acquisitions occurring in the relevant six month period and foreign currency
movements.
Notes to the interim financial statements (continued)
9. Creditors - amounts falling due within one year
As at As at As at
30 September 30 September 31 March
2003 2002 2003
£m £m £m
--------------------------------------------------------------------------------
Secured:
Bank loans - 9.8 -
Unsecured:
Overdrafts 0.1 0.3 7.0
Trade creditors 24.1 22.7 26.9
Dividend payable - GUS
group 5.8 3.9 7.8
Dividend payable - other
Shareholders 1.6 1.1 2.2
Trading balances owed to
GUS group companies 7.0 0.9 5.1
Corporation tax (UK and
overseas) 22.8 10.7 22.1
Other taxes and social
security costs 5.4 4.3 4.6
Other creditors 17.8 18.8 18.4
Accruals and deferred
income 62.5 48.5 54.5
Deferred consideration for
acquisitions 2.5 2.5 2.5
--------------------------------------------------------------------------------
Total 149.6 123.5 151.1
--------------------------------------------------------------------------------
10. Creditors - amounts falling due after more than one year
As at As at As at
30 September 30 September 31 March
2003 2002 2003
£m £m £m
--------------------------------------------------------------------------------
Unsecured:
Bank loans - 18.2 -
Other creditors, accruals and
deferred income 3.5 5.1 6.0
Deferred consideration for
acquisitions 30.5 30.1 29.2
--------------------------------------------------------------------------------
Total 34.0 53.4 35.2
================================================================================
11. Reserves
The other reserve of £704.1m at 30 September 2003 (2002: £704.1m) represents the
amounts transferred from the share premium account within Burberry Group plc as
a result of the capital reduction carried out immediately prior to flotation.
This reserve will be classified as distributable when the creditors of Burberry
Group plc, as at the date of the capital reduction, have been settled fully.
The negative profit and loss account balance arising on consolidation resulted
from the reorganisation of Burberry Group immediately prior to flotation. This
negative balance will be eliminated when the other reserve of £704.1m is
classified as distributable.
Dividend distributions are dependent on Burberry Group plc's ('the Company')
accumulated profit and loss account. As at 30 September 2003 the profit and loss
account of the Company was £141.6m (2002: £133.6m).
Notes to the interim financial statements (continued)
12. Contingent liabilities
Since 31 March 2003 the following changes to contingent liabilities have
occurred:
The claim for £2.4m received from a number of the vendors of the Asian
distribution businesses acquired on 31 December 2001 has been settled in October
2003. The settlement was fully provided for as at 30 September 2003.
The Group has received a claim from the liquidator of Creation Cent Mille SA
('CCM') a former licensee of Burberry Group, seeking to set aside the
termination of the licence agreement between Burberry Limited and CCM. Burberry
Group believes this claim is without merit and intends to vigorously defend
itself.
The Group has been named as one of approximately 100 defendants in a class
action in California, USA, which alleges that employees' job application
processes violated the Californian Labor Code. The defendants have collectively
filed a motion to dismiss this action and a ruling is pending.
Other contingent liabilities reported at 31 March 2003 remain unchanged and
were:
Under the GUS group UK tax payment arrangements, Burberry Group is and will
remain jointly and severally liable for any GUS liability attributable to the
period of Burberry Group's membership of this payment scheme. Burberry Group's
membership of this scheme was terminated with effect from 31 March 2002.
Burberry (Spain) S.A. is liable for certain salary and social security
contributions left unpaid by its sole contractors where the amounts are
attributable to the period in which sub-contracting activity is undertaken on
behalf of Burberry (Spain) S.A. It is not feasible to estimate the amount of
contingent liability, but such expense has been minimal in prior years.
In the year ended 31 March 2002, Burberry Group received an invoice in respect
of construction works at the Bond Street site from its former lessor. The
Burberry Group has notified the other party that it is seeking recovery of
certain costs incurred because of the late delivery of the store structure. The
Burberry Group intends to defend its position.
Independent review report to Burberry Group plc
Introduction
We have been instructed by Burberry Group plc to review the financial
information of Burberry Group plc and its subsidiaries ('the Group') which
comprises the Group profit and loss accounts, the statement of total recognised
gains and losses, the reconciliation of movement in Shareholders' Funds, the
Group balance sheets, the Group cash flow statements and the notes to the
interim financial statements. We have read the other information contained in
the interim report and considered whether it contains any apparent misstatements
or material inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of Group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom Auditing Standards and therefore
provides a lower level of assurance than an audit. Accordingly we do not express
an audit opinion on the financial information. This report, including the
conclusion, has been prepared for and only for Burberry Group plc for the
purpose of the Listing Rules of the Financial Services Authority and for no
other purpose. We do not, in producing this report, accept or assume
responsibility for any other purpose or to any other person to whom this report
is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 September 2003.
PricewaterhouseCoopers LLP
Chartered Accountants
London
18 November 2003
Shareholder information
Registrar
Enquiries concerning holdings of the Company's shares and notification of the
holder's change of address should be referred to Lloyds TSB Registrars, The
Causeway, Worthing, West Sussex, BN99 6DA, telephone: 0870 600 3970. In
addition, Lloyds TSB Registrars offer a range of shareholder information online
at www.shareview.co.uk. A text phone facility for those with hearing
difficulties is available by calling 0870 600 3950.
Share price information
The latest Burberry Group plc share price is available on Ceefax and also on the
Financial Times Cityline Service on 0906 843 2727 (calls charged at 60p per
minute).
Internet
A full range of investor relations information on Burberry Group plc, including
latest share price and dividend history, is available at www.burberry.com.
Financial calendar for the year ending 31 March 2004
Third quarter trading update 13 January
2004
Interim dividend record date 23 January
2004
Interim dividend to be paid 4 February
2004
Second half trading update 14 April 2004
Preliminary announcement of results for the year to 31 March May 2004
2004
Annual General Meeting July 2004
Registered office
Burberry Group plc
18-22 Haymarket
London
SW1Y 4DQ
Telephone: 020 7968 0000
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